Why Are Energy Bills Going Up In The UK?

With the cost of living rising rapidly in the UK, energy bills are one of the most significant increases in everyday essentials. In addition, energy costs become increasingly concerning as colder temperatures and fewer sunlight hours roll in. So, if you’re wondering why energy bills are going up and what you can do about it, we’re on hand to answer some frequently asked questions. So, read on to get up to speed with all things energy bills.  

 

Why is there an energy crisis? 

As countries began recovering from the pandemic, demand for gas began increasing again. However, the increase could not be met due to a shortage in supply. As a result, gas prices started rising in 2021. 

Since, several factors have affected supply and demand, with some analysts calling it a perfect storm:

• Hot weather in Asia caused increased gas used for air-conditioning. 
• Due to a cold winter in Europe last year, supplies saw further pressure. As a result, stored gas levels are much lower than usual. 
• By the end of December 2021, 28 energy companies in the UK had gone bust, affecting over two million customers. 
• While gas exports from Russia to north-west Europe were already lower, Russia’s invasion of Ukraine exacerbated the problem.

 

How has Russia’s invasion of Ukraine contributed to the energy crisis? 

Russia is the world’s second-largest exporter of crude oil and the largest natural gas exporter. Both are essential for heating homes, fueling cars and powering planes. 

However, after Russia invaded Ukraine, the US, EU and UK placed restrictions on oil and gas imports from the country. The result? Further decrease in supply, driving prices up to all-time highs. 

 

Why are energy bills going up?

In short, your energy bills are going up because the wholesale price of energy has increased significantly. Unfortunately, forecasters expect bills to continue rising, with Professor Jonathan Bradshaw of York University predicting more than 60% of households will go into fuel poverty. 

Thankfully, the Government have recently put new measures in place to combat the rising costs. Please note the information below is correct when writing this article on 27 September 2022. 

 

What is the energy price cap? 

Ofgem – the Office of Gas and Electricity Markets – in Great Britain introduced an ‘energy price cap’ in January 2019. This was following concerns that many people, particularly those who didn’t switch to cheaper suppliers, were paying too much for their energy. 

In a bid to stabilise the energy market, the cap set a maximum amount that energy suppliers can charge per unit of energy. Previously, Ofgem cap reviewed the cap twice a year. More recently, they reviewed the cap every three months. 

The energy price cap was due to increase by a staggering 80% as of 1 October 2022 for 24 million people in England, Scotland, and Wales. 

Thankfully, the Government introduced new measures as of 1 October to control soaring energy costs. 

 

Are the Government doing anything about the energy crisis?

From 1 October 2022, typical household energy bills will be ‘capped’ at £2,500 per year. Below are key takeaways from the new energy price guarantee: 

• Before the announcement, typical household bills were predicted to rise to £3,549 a year,
• Now the new measures are in place, a typical household’s energy bill will rise from £1,971 to £2,500.
• The ‘price cap’ is not a limit on how much you pay. Your bill remains dependent on your energy usage.
• The energy price guarantee will remain in place for two years. 
• The plan applies to all households in England, Scotland, and Wales. 
• Every household In the UK will still get a £400 energy bill discount In October. 
• Households that don’t use mains gas and electricity – such as those using heating oil – will receive an additional £100 discount. 

 

How will the energy price guarantee work? 

The Government’s price guarantee replaces the existing energy price cap. However, as mentioned earlier, the energy price guarantee does not limit how much you’ll pay each year. Instead, your bill depends on how much energy you actually use. 

As of 1 October, dual-fuel customers on a standard variable tariff will pay: 

• 34p per kWh of electricity 
• 10.3p per kWh of gas

So, based on this figure, a typical household can expect to pay around £2,500, which is where the figure has come from. The £2,500 figure refers to a national ‘average family’ using 12,000 kWh per year, paying by direct debit. 

As most households aren’t ‘typical households’, the term price cap is misleading to customers. 

Several factors will affect how much you pay, such as the number of people in your house, whether you’re on a fixed or variable deal, the type of property you live in and how much energy you use. Furthermore, you may pay more if you’re on a pre-pay meter or pay after receiving your bill.  

 

How much will the energy guarantee cost, and who will pay for it? 

The Government said the energy package would cost £60bn in the six months from October. The costs will be covered by increased borrowing, which is when the Government raise money by selling financial products called bonds, to be paid back after several years with interest. 

In a nutshell, taxpayers ultimately pay back more than the Government raised. 

 

How can I reduce my energy bills?

The question that often follows from why are energy bills going up is how do we reduce them? 

Firstly, we recommend doing your best to reduce how much energy you use at home. For example, turn off lights when you’re not in, air dry clothes instead of tumble drying and switch to energy-saving products such as lightbulbs. In short, aim to make small everyday changes to be as conservative as possible.

Secondly, if a new price cap is introduced, always submit an updated meter reading before it comes into effect. If you don’t, your energy provider will estimate how much energy you’ll use. This means you may be charged a higher rate, even if you’ve since cut your consumption. 

 

Can I get financial support to help pay my energy bills? 

In addition to the one-off £400 discount on bills in October, more than eight million low-income households will receive an additional £650. 

Further payments of £150 to disabled people and £300 to pensioner households will also go ahead. 

Vulnerable families can claim additional support through Government schemes Warm Home Discount and Household Support Fund. Furthermore, you may receive support via hardship funds in place by energy suppliers. For further information on what you can do if you can’t afford your energy bills, head to Citizens Advice.

 

By installing solar panels in your home, you can benefit from reduced energy bills. If you’d like to know more and take a step towards sustainability with Project Solar, get in touch with our team today.